Like in this game of double and dribble, staying on the defensive, going for an all-out attack and staying realistically optimistic holds good when you are playing with your money as well
The game of investing is a lot like football. You have to tackle your problems, block your fears and score your points when you get the opportunity. Tactical analysis and planning have become essential in football as well as investments. Managers and investors in both these fields need to be on top of their game to ensure that all their efforts yield substantial results. You must be wondering how tactics in football can be related to investment planning. Well it’s not too far-fetched an idea if you think about it.
Do not put all your eggs in one basket.
A clichéd quote overused in the field of investments. It has become a thumb rule, really. Football, just like investments, is a game where the objective is to score goals (create wealth). But at what cost? After all you have only 11 players (limited funds) on the pitch! The correct allocation of these players in defensive and offensive positions is essential to obtain the desired results. A right mix of equity and debt will ensure that you ‘attack’ and score (make capital gains) with your high risk equity stocks and ‘defend’ (don’t concede/ lose money) with your low risk debt holdings.
All-out attack or ultra-defensive?
Taking calculated risks is an essential trait of any successful investor. It is firstly important to establish what level of risk one is willing to endure. Is scoring lots of goals (high capital gains) important? Or will a draw suffice, which will ensure you don’t lose the game? (procure losses with your investments). Investors also face short term dilemmas when they have a chance to hold on to their stocks and hope for a higher return or redeem their stocks and book profits immediately. Investors, like football managers, possess the option to “counter-attack” (buy aggressively when the markets are down) or play “possession football” (make conventional decisions and flow with the market).
All-out attack or ultra-defensive? Taking calculated risks is an essential trait of any successful investor
Football managers have their own trademark styles and the way they put their teams out says a lot about their risk taking abilities. Some might be conservative and might play with five defenders at the back (debt oriented portfolios) while some might be more flamboyant and only play with 3 defenders (aggressive equity oriented portfolios).
Managers always keep an eye out for the marquee players in the opposition team. There are certain players who need to be kept under check in order to minimize the threat from them. This could involve sacrificing a player to nullify that threat. Similarly one can use a small fraction of their funds (a player) to cancel out uncertainties in the market, this can be done with the help of hedging and reducing risk.
It is very important to be pragmatic about ones investments and not expect super-fast results. Football is a game of 90 minutes and until the final whistle blows, the manager has full faith in his players to deliver the desired results. There could be stressful situations arising for an investor where he/ she would not be certain about holding or selling their stocks. In such situations, an investment advisor can guide you through rough waters and ensure your investments are well taken care of.
Post match analysis help bring out any shortfalls that occurred during a game. These must be rectified to ensure optimum results for the games to come. Likewise, while investing it is important to have a guide or a trusted professional who will point out if there are any errors or whether certain areas in your portfolio can be improved upon. This can ensure prime utilisation of your resources.
A football manager and a successful investor share some common traits like: planning, analysis, discipline and focus. A variety of these traits separates the best from the rest and will almost guarantee smooth sailing during your journey of investing.
Written By: Karan Dwivedi and Krimica Sojitra
Wednesday, December 09, 2015 5:44:00 PM